Mideast oil gains firm foothold on U.S. West Coast

Published May 23rd, 2001 - 02:00 GMT

(Reuters) - Middle East crude oil has gained a firm foothold among U.S. West Coast refiners in recent years and is likely to make further gains as refiners seek options to a traditional diet of Alaskan crude, according to crude oil traders and analysts. 


"The Saudis and Iraqis are targeting the refiners. Their crude is really a replacement for Alaska North Slope (ANS) crude," said Leslie Watson of energy consultancy firm Purvin & Gertz. 


Crude oil imports to the West Coast rose beyond 700,000 barrels per day last year from 626,000 bpd in 1999, U.S. government data shows. By contrast the region's consumption of Alaskan oil dropped to 970,000 bpd from 1.05 million bpd in 1999, in line with falling production of ANS crude. 


Iraq retained its position as the leading source of imported oil to the U.S. West Coast last year, followed by Ecuador, while Saudi Arabia moved up to third place from fifth in 1999. 


Traders and analysts said Middle East crude imports were driven in large part by refiners' desire to have an alternative light crude feedstock to maintain a competitive market and avoid overpaying for Alaska North Slope cargoes. 




Chevron Corp. emerged as the first big importer of Iraq's Basrah light crude to the U.S. West Coast, shipping it to its two refineries in the Los Angeles and San Francisco areas which both process over 200,000 bpd of crude. 


BP Plc started importing Basrah to the West Coast after acquiring Atlantic Richfield Co. and its two big West Coast refineries in April 2000 while Valero Energy Corp. also acquired a taste for Basrah after buying the former Exxon refinery at Benicia, near San Francisco, in May 2000. 


Data from the U.S. Energy Information Administration shows that Iraqi imports to the U.S. West Coast amounted to 138,000 bpd in 2000, up from 133,000 bpd in 1999. 


Imports from Ecuador rose to 105,000 bpd from 86,000 while Saudi imports jumped to 89,000 bpd from 58,000 in 1999, as Chevron and BP brought in cargoes of Arab Light crude. 




Valero's Chief Executive Officer Bill Greehey said earlier this month that he plans to use the economies of scale created by Valero's planned acquisition of Ultramar Diamond Shamrock Corp. to bring in more imported crude. 


"We're laying in Basrah for over $1 (per barrel) less than ANS and when you start bringing that crude in, you're going to force that ANS discount to widen and be more competitive with foreign crude," he said. 


Like most other U.S. crude grades, ANS is priced at a discount to West Texas Intermediate oil. 


The Ultramar deal, if approved by regulators, would give Valero three West Coast refineries with a combined capacity of 380,000 bpd, making it the third biggest refiner in the region after Chevron and BP, which both have over 480,000 bpd of refining capacity. 


Dave Hackett, an energy consultant with Stillwater Associates, said increased West Coast imports of Saudi crude, probably reflect some displacement of Saudi crude from refineries on the U.S. Gulf Coast, caused by increasing domestic deepwater oil production from the Gulf of Mexico. 


The Iraqi and Saudi imports can be run by most ANS refiners, he said, though they are lighter and more sour. "There's a bit of a tradeoff between gravity and sulfur," Hackett said. 


Watson, of Purvin & Gertz, said the role of ANS substitute, now played by the light Middle East crudes, had previously been played by Oriente crude from Ecuador until that country began mixing the lighter Oriente with heavier oil, making it more suitable for West Coast refiners who run a heavier crude slate. 


However, plans by Ecuador to build a separate heavy crude pipeline could reverse the situation, she said, making Oriente an ANS look alike again and possibly providing a new source of heavy oil to help offset declining output of heavy California crudes. 


California's mostly heavy crude oil production slipped to 741,000 bpd last year from 748,000 bpd in 1999 while production from federal waters off the West Coast -- the other main source of the 2.5 million barrels consumed each day by the region's refineries -- fell to 96,000 bpd from 109,000 bpd.  


Andrew Kelly 




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